If it wasn't for video game consoles, there's a good chance Netflix (NASDAQ:NFLX) wouldn't be where it is today.
Sure, Netflix subscribers have plenty of options to stream video content -- smart TVs, set-top boxes, Blu-ray players, mobile devices -- but video game consoles were among the first products to get dedicated Netflix apps (the Xbox 360 in 2008, the PlayStation 3 in 2009) and are still among the most commonly used to stream Netflix content.
They could be about to help Netflix yet again, playing a key role in the shift to 4K video.
A hardware revision for Netflix?
Both Microsoft and Sony have a history of revising their video game consoles. Although both devices retained the same basic architecture, both the Xbox 360 and the PlayStation 3 went through several revisions over the last 10 years.
In 2007, the Xbox 360 "Arcade" and Xbox 360 "Elite" replaced the Xbox 360 "Pro" and "Core" launch models, before eventually being replaced by the Xbox 360 "S" in 2010. Likewise, the PlayStation 3 "slim" replaced the original PlayStation 3 in 2009, before eventually being replaced by the "super slim" model in 2012.
It would make sense, then, for their successors to also see a number of hardware revisions, perhaps as soon as this year.
According to The Huffington Post and Forbes, Netflix believes that both Microsoft and Sony will deliver revised consoles this fall -- and that both will support 4K Netflix video playback. As it stands, the current models of the Xbox One and PS4 do not support playback of Netflix 4K content, and it's not clear that they ever will. (They use an older standard of HDMI cable -- HDMI 1.4 -- that puts tight limitations on 4K content. The new standard, HDMI 2.0, is far better suited to streaming 4K video.)
4K has not meaningfully benefited Netflix -- yet
Of course, this all very forward-looking: Despite enjoying rapid growth, 4K televisions remain in the minority. Last year, less than 10% of the televisions sold worldwide were 4K, to say nothing of the hundreds of thousands of perfectly capable 1080p TVs that likely won't be replaced for many years.
Still, as an Internet video provider, Netflix is uniquely positioned to benefit from the move to 4K.
As it stands, most cable and satellite providers offer little 1080p content, let alone 4K. This is unlikely to change for many years, as the nature of broadcast networks requires massive upgrades on a channel-by-channel basis. Those upgrades likely won't come until a large portion of households have upgraded to 4K TVs.
In the meantime, Netflix is one of the only providers offering 4K content. Buyers of 4K televisions who wish to take advantage of their new technology, then, will be prime targets for Netflix's service, and in particular its high-end service: To watch 4K shows on Netflix, subscribers are required to opt for the more expensive, premium Netflix streaming plan.
Netflix has said the extra costs cover the fees associated with obtaining and streaming 4K content, which suggests little margin improvement. But the 4K plan is a full $3 (or 33%) more expensive -- it seems unlikely that streaming a few shows in 4K would raise Netflix's costs that much. Unfortunately, Netflix doesn't provide a breakdown of the margins on its various streaming plans. In its most recent annual report, it said that its higher-cost, premium plan did not have enough subscribers to matter.
But as more 4K TVs are sold, and more 4K-capable devices come to market (including, perhaps the next Xbox One and PlayStation 4) Netflix should benefit. Any factor that can drive greater 4K adoption should be welcomed by Netflix shareholders.